Linear Process Bootstrap Unit Root Test

Abstract

One of the most widely applied unit root test, Phillips-Perron test, enjoys in general highpowers, but suffers from size distortions when moving average noise exists. As a remedy, thispaper proposes a nonparametric bootstrap unit root test that specifically targets moving aver-age noise. Via a bootstrap functional central limit theorem, the consistency of this bootstrapapproach is established under general assumptions which allows a large family of non-linear timeseries. In simulation, this bootstrap test alleviates the size distortions of the Phillips-Perrontest while preserving its high powers.